Q1 2020 Earnings Call
Good day.
To the southern Missouri core.
Earnings Conference call.
Participants will be well show me about.
So do you need assistance push the goal for specialist for especially the starts you followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question. Your press Star then one already touched on phone.
George Your question. Please press Star then.
Please note today's rents Israel recorded.
Let's turn the conference over to Mr., Matt Foshee, Chief Financial Officer. Please go ahead Sir.
Well, thank you Rocco and good afternoon, everyone. This is Matt Funky CFO with some very bancorp. The purpose of this call is to review the information and data presented in our quarterly earnings release dated Monday October 21st 20, Nike and state your question.
We may make certain forward looking statements during today's call. When we refer you to our cautionary statement regarding forward looking statements contained in the press release.
Thank you all for joining us today I'll begin by reviewing the preliminary results highlighted in the quarterly earnings release the quarter ended September Thirtyth 2019, the first quarter of work 2020 fiscal year.
We earned 85 cents diluted in the current September quarter that is up four cents Trimble linked June quarter and up nine cents from the 76 cents diluted that we earned in the September 2018 corridor.
Our net interest margin in the first quarter was 3.81% and that included about 10 basis points of benefit from fair value discount accretion on acquired loan portfolios and premium amortization on assumed deposit.
Which was about $508000 in dollar terms.
Additionally, the current period margin included about eight basis points of benefit were 414000 in dollar terms from interest collected on a few larger loans that had been previously treated as non accrual.
And your though period, our margin was 3.92% of which 27 basis points resulted from fair value discount accretion were 1.2 million.
So on what we see as a core basis, then our margin was down by about two basis points compared to September 2019 quarter to the September 2018 order.
Our core asset yield is up 30 basis points.
Less than the increase in our poor cost of deposits, which we see at 37 basis points.
But our total core cost of funds is up a little less than deposits by themselves at 33 basis points of increase.
Compared to the linked quarter, what our net interest margin was 3.77% and we had 12 basis points to benefit from discount accretion.
This would indicate our core margin is down two basis points sequentially also.
However, the number of days in the quarter doesn't impact that measurement as we figure as we figure our annualized net interest margin by taking our quarterly figure and multiply by four.
And that provides a lifted the few basis points to the 92 days September quarter as compared to the 91 day Jim Porter.
So adjusted for the day Count we would put the sequential decrease in the core margin at about six basis points.
Noninterest income as a percentage of our average assets annualized 73 basis points, which is one basis point better than the same quarter, a year ago and five basis points improved from the late June quarter.
There are no gains or losses on that security than any of the relevant period and nothing of significance that we identified as noncore items.
The largest changes from the linked period or loan servicing fees, where we took a hit on valuation at her June Thirtyth 2019 fiscal year end.
An improvement in deposit service charges, primarily NSF revenue.
Some of which is seasonal as we've moved later in the calendar year.
Bank card revenues and light charge collections.
Paired with a year ago period debit card revenue was the largest contributor followed by deposit service charges.
Wealth management and insurance brokerage commissions, which are new revenue sources for the company.
And gains on secondary market [laughter] excuse me gains on secondary market loan sales and late charges collected.
Noninterest expense was up 13.2% compared to the same quarter, a year ago and up 1.4% as compared to the linked quarter.
In that same quarter, a year ago, we included $175000 and mergers and acquisition expense with known in the current period.
Core deposit intangible amortization as a bit higher than a year ago at 441000 this quarter.
And we recognized a relatively large recovery of provision for off balance sheet credit exposure 146000, as compared to a small charge and the same quarter a year ago 23000.
In the linked quarter, we had over its [laughter] into linked quarter, we had a smaller recovery all that item $46000.
As a percentage of average assets non interest in noninterest expenses down nine basis points as compared to the same quarter, a year ago and unchanged for the linked quarter at 2.32 per se.
But if you exclude mergers and acquisition and other non recurring expenses.
Intangible amortization and provision for off balance sheet credit exposure, we calculate that are operating non interest expenses up two basis points from the linked quarter and down one basis point from the September quarter, a year ago.
Our effective tax rate was a bit higher at 20.2% this quarter as growth in pre tax income outpaced our tax advantaged investments.
A year ago and linked quarter effective rate was 19.7%.
We're happy to know the for the first time in a couple of years, we have consistent tax law for year over year comparison purposes as our June 30 fiscal year end had delayed the full impact at the corporate tax changes for our results until the first quarter fiscal 2019.
On the balance sheet loan growth was up a bit in the September quarter as gross loans increased 29 million after having grown 23 million in the June quarter.
But we are seeing less seasonal impact that normal over the last four quarters.
Growth in the first nine months of this calendar year is running at about 30% less than over the first nine month of the prior calendar year.
And we felt that this decrease is consistent with our recent expectations.
Over the last 12 months exclusive of acquired loan balances.
The gross loan portfolio has grown a little less than 7%.
We've been slightly more active investment we've been slightly more active in investment securities since the prior quarter in but we still haven't been excited about opportunities, but it sounds to work there.
Total assets increased about $35 million and the September quarter attributable to loans Securities and federal home loan Bank membership stock.
Deposits were down $21 million in the September quarter, as our decision to allow some brokered deposits to roll into overnight borrowings.
[noise] combined with public unit outflows, which we typically see at this time of year.
But which were larger this year as they included one, particularly notable draw from a deposit or utilizing funds for capital improvements.
Resulted in an overall decrease in the portfolio.
We've seen a reduction in deposit or appetite for time deposits as the inverted yield curve has reduced the term premium available that we do continue to see isolated competitors offering pricing that doesn't make sense for us given our available funding sources.
Exclusive of acquisitions and brokered funding over the last 12 month.
Time deposits are up almost 13%, while non maturity balances are up a little more than 5%.
FHLB advances were up 58 million in September quarter. After we had reduce them, notably earlier in the calendar year and they were at 103 million and totaled at quarter end.
Pair two a year ago FHLB borrowings are down about 15 million.
The increase in the current quarter was attributable to loan growth in deposit outflows, including primarily the public unit and brokered funding noted earlier.
The majority of the funding has been taken on an overnight basis at this time as we expect deposit inflows and modest loan growth as we move towards calendar year end.
We were pleased to see a reduction in nonperforming loan balances this quarter down by a third were $7 million to stand at $14 million at September Thirtyth 2019.
NPL represent 0.74, 0.74% as a percentage of total loans down from 1.13% of the prior quarter end and as compared to 0.46% a year ago, which was the last quarter in prior to the Gideon acquisition.
Nonperforming assets at quarter end were 17.9 billion down almost as much as NPL in dollar terms and as a percentage of total assets in D. AIDS are at 0.8% down from 1.12% at June Thirtyth and up 4.64% at September Thirtyth, one year ago.
The banks credit management teams continued to make progress with our delinquent and classified credits and we hope to see continued improvement in nonperforming loan an asset figures in coming periods.
Net charge offs remained at two basis points annualized that's unchanged over the last 12 months and its down one basis point for the September quarter, a year ago.
Was slightly better loan growth our provision increased to 896000 as compared to 546000 in the linked quarter.
We provisioned 682000 in the September quarter, a year ago, when loan growth was stronger, but we resolve some problem credits, which had previously had specific allowances set aside.
Provision expenses, 1912, and 17 basis points, respectively, as a percent of average loans in the current linked and year ago periods.
If you look at those measures on a trailing 12 month basis, our provision to average loans over the last four quarters isn't 13 basis points and our charge offs to average loans or a two basis points.
A year ago, those figures would have been a provision of 19 basis points and net charge offs of three basis points.
The allowance as a percentage of our gross loans was up two basis points to 1.09% at September thirtyth as compared to 1.07% at June 30.
A year ago at September Thirtyth before getting an acquisition.
The allowance was 1.14% on gross loans.
Our acquired loans are subject to fair value adjustments at the time of acquisition, we did not hold and allowance against them unless we identified subsequent impairment and that explains most of the decrease in our allowance in percentage terms compared to the year ago period and it also helps to explain the reason the allowance has been rolling over recent quarters as a percentage.
Our loan portfolio that is subject to holding an allowance has been increasing while the percentage that subject purchase accounting marts has been decreasing.
We continue to work towards implementation of the new current expected credit loss accounting standard, which will be effective for the company July one 2020, but we have not developed estimates of the impact on our allowance at this time.
That concludes my prepared remarks, and at this time I'll introduce Greg Stepans our CEO .
Thank you Matt. Thank you all for dialing in this afternoon.
Like the site to begin with we are satisfied with loan growth for the first quarter of our fiscal year of 28 million or 1.5% as it came within our guidance of 5% to 7% loan growth. However, it should be noted that the first quarter of our fiscal year has typically been one of our stronger quarters for growth that's seasonal growth factors.
As a bit less pronounced over recent periods and we were able to reduce our mph says expected from the Gideon acquisition.
Our organic growth was led by increases in agricultural operating equipment loans, followed by growth in drawn construction balances and consumer loans related.
[noise], partially offset by declines in our commercial real estate loans.
Overall, the changes in the composition of our loan portfolio is fairly limited during recent periods Southern Missouri Bancorp's CRT concentration moved from 244% at September Thirtyth 2018.
To 255% at June Thirtyth, 2019, and this back below 250%.
At September Thirtyth 2019.
Our organic loan growth during the quarter was centered primarily at our south and east regions as our West region was relatively flat due to increased competition within that market.
Overall, the South region grew by 16 million in these recent grew by 12, respectively.
Our volume of loan originations, which totaled 124 billion for the quarter was comparable to the linked quarter, but was down from 177 million over the same period to the prior year.
The drop in originations over the prior year reflects our lower pipeline as of June Thirtyth 2019.
Reduced loan originations were primarily in non owner occupied CRT and commercial loans and were attributable to reduced loan demand that we anticipated in our lower loan growth expectations.
Now I'd like to provide an update on our agricultural customers agricultural real estate balances remain flat over the quarter well agricultural production loan balances grew $14 million.
Our agricultural customers 2019.
Crop year started slowly, but due to a drier than normal fall our customers have made good progress on their harvest. We are actually ahead of schedule compared to recent years as approximately 70% of our crop has been harvest.
Based upon our crop inspections completed during the September quarter, we're projecting somewhat better than expected results for agricultural customers.
Based on these inspections enhanced internal analysis compared to recent years and current crop prices were expecting only a quite small number of customers to fall short on their operating lines and or term debt inline with our customers historical performance overall, we're quite pleased with our exit.
Cultural customers anticipated results and believe that they will perform similar to our historical experience.
I would also like to add matts comments on our nonperforming loans, our nonperforming loan balances have been elevated from historical levels. Since the Gideon acquisition, we have been diligent working on resolving these credits. So we're pleased to reduce mpls as anticipated last quarter.
Total Mpls at September 30 to 2019 from the get in acquisition were $8 million as compared to 13 million reported at December 30, Onest 2018.
In addition, we continue to anticipate continued improvement during the current quarter, which will move us even closer to our historical nonperforming loan ratios.
We have also seen improved payment performance as well in our.
Loan portfolio as loans 30 days for more pass do drop from 11.6 million or 0.62% at June Thirtyth 2019 to just $9.9 million were 0.52% as of September thirtyth.
Our loan pipeline for lot of loans to be funded and 90 days totaled 101.7 million at September Thirtyth.
Compared to 83 million at June 32019, and a 114 million at September Thirtyth 2018.
The pipeline is diversified nature and similar to our existing portfolio mix based on our.
Pipeline seasonality of the agricultural portfolio recent declines and treasury rates, which contributed to accelerated prepayments and some softening in loan demand, we anticipate our loan portfolio to grow in line with our prior guidance of 5% to 7% annualized growth.
Pricing pressures in the marketplace have increased with the recent drop off in loan demand in the drop in interest rates.
Moving onto our deposits, even though total deposits deposits declined 21 million during the first quarter of our fiscal year ended September thirtyth.
We are satisfied with our deposit portfolio's performance for retail non maturity deposits.
The decline in deposit balances was attributable to a net reduction in broker deposits of 12 million in public in a deposit outflows of 24 million.
We have traditionally experienced seasonal outflows of public unit deposits during the September quarter, but this quarter's outflow was somewhat higher than normal due to one larger one time withdraw the map mentioned earlier.
Excluding brokered in public unit deposits retail non maturity deposits grew $10 million were 1%, which is slightly below our internal goal for non maturity growth of 5% to 7%, but the September quarter. Typically is one of our weaker quarters for non maturity growth and we usually experience.
Better picked up in the second quarter.
CD growth for the quarter, excluding broker deposits and public in the balances totaled 5 million, we're 0.8%, which is below recent trends, we believe reduced CD growth is primarily attributed.
To the drop in interest rates as consumers are slowing their migration of funds from non maturity counts into Cds.
Core deposit growth continues to be challenging will likely continue to be due to aggressive competition.
Within our marketplaces, we expect continued deposit growth in both not maternity accounts and Cds.
For fiscal 2020, we continue to project non maturity and CD deposit growth of 5% to 7%.
Turning to merger and acquisition out activities, we have looked at several potential partners over the last quarter, but our number of looks has declined over the last quarter compared to the prior.
We continue to evaluate potential activity in our markets, where a nearby markets where leave our business bottle will perform well not for the opportunity to profitably grow our franchise.
And we will continue to look for acquisitions that offer good core deposits to ride for long term growth.
We continue to primarily target companies in the $250 million at 500 million asset range, but we'll consider smaller or larger companies depending upon their strategic benefit for us both financially and geographically we are still committed to being patient will not chase after deals.
We also announced the stock repurchase plan for 450000 shares in November 2018.
During the last quarter, we repurchased 86050 shares of our stock at an average price of 30 to 70 per share. They have 329000 shares remain the.
Authorized for repurchase under our repurchase plan.
The company continues to look at the market value of our stock compared to valuation metrics for other stocks in our industry and peers within our reach we continue to evaluate potential use of capital through stock repurchases versus other options to deploy capital and provide for long term shareholder returns.
Thank you.
Thank you Greg and at this time rocket we'd like to take any questions that are participants may have so if you would please remind folks how they can do for question absolutely Sir.
Thank you should ask your question. They went press Star then one on your Touchtone phone.
Verizon Speakerphone, please pick up for handset before proceeding the keys.
If at any time your question that's been a trusted your lights or withdraw your question. Please press Star then too.
Todays first question comes from Andrew.
And were O'neil. Please go ahead.
Good afternoon, everyone.
Hey manner no just.
One question for me here, just come and get your thoughts on the margin here and had held up better than I was expecting.
Certainly drops in LIBOR, and then and expect the expectations of more fed rate cuts are you putting pressure on earning asset yields.
Do you guys have opportunities to to lower funding costs as well the to keep pace and maybe keep the margin rate range bound.
We'll have we'll have some opportunity with with some wholesale funding some of the brokered funding some of the FHLB, we don't anticipate.
Nipigon opportunities probably in the coming quarter, we think we'll get more release in the January quarter on on the funding costs.
Okay.
And then just back on on M&A.
How about you may be looking at deals in market, but also maybe next to a or adjacent to where your current footprint is are there any locations that when you look kind of map that he thinks that this would be a nice place for us to do expand too.
We have looked at primarily at our market footprint as ranging from Kansas City, the Saint Louis to Memphis to little rock within that general geographic footprint.
Sure.
Thank you those are all my questions.
Thanks, Andrew.
And ladies and gentleman once more if you like to ask questions. Please press Star then one our next question comes from Kelly Motta of KBW. Please go ahead.
Hi, guys good afternoon.
Good afternoon.
So my first question is on expenses.
You mentioned in.
The Texas a press release, the FDIC benefit I was wondering.
About how how much that or was this quarter.
Well, if you look back to the the June quarter, I think we're running somewhere around 160000 per quarter, I mean verify that for you.
Okay, and so that kind of them out should come out of the following quarter as well and then kind of built back up.
Based on.
Our expectation is that we won't have anything do for the December quarter, either and then a partial assessment for the March quarter before it picks back up to normal.
Gotcha.
Was there anything else I think outside of that expenses grew about 3% quarter over quarter <unk> was what were the drivers of that.
Some of its just yearend cleanup of our accruals.
Year end type expenses bonuses for one k. accounting those types of things.
Fell a little bit more in our favor for the June 30 quarter end.
I think we had a.
Relatively small loss on some fixed assets, we recognized in the June quarter.
No no one big thing Okay.
And then maybe on fees.
Thank you mentioned there is nothing really unusual about that but you did in your prepared remarks reference.
The MSR and you recorded a I believe loss on that in the fourth quarter of 2019 your June quarter.
Wondering if you had kind of the moving parts of that and if there's anything else you kind of consider with fees or this is kind of a good levels to think about building off of from here.
I don't think there's anything anything else there.
On the.
On the mortgage servicing.
[noise] we were.
You know.
Roughly a.
$230000 swing there it looks like quarter to quarter I don't think the write down on the servicing rights was quite that much.
In that ballpark it was around 200000.
Great. Thank you.
Kelly on the FDIC.
It was.
I'm sorry, it was 224 the.
Fourth quarter, it had been running a little bit below that previously that before the Gideon numbers kind of filtered through the dollars India.
Around 160000 prior to that.
Thank you Sir This concludes my first question answer session, Let's turn the conference back over to the management team for any final remarks.
Thank you Rocco and thank you everyone for participating and for your interest in the stock speak with you again in three months.
Thank you Sir.
I will conclude only thank you all for attending today's presentation. You may now disconnect your lines level wonderful day.
Thanks.